BASIC Microeconomics IDEAS

Question 1

Factors of production

Answer 1

The resources used in the production of goods and services

Question 2

Resources

Answer 2

The natural occurring and human-made items in an economy

Question 3

Economic Problem

Answer 3

Resources are scarce but wants are infinite

Question 4

scarcity

Answer 4

when resources are limited in supply

Question 5

wants

Answer 5

desires, not needed for survival

Question 6

needs

Answer 6

essential for living

Question 7

Ceteris Paribus

Answer 7

all other things being equal / other things held constant / all else unchanged

Question 8

Factor income

Answer 8

the reward to the factors of production

Question 9

land

Answer 9

natural resources in production - oil, livestock

factor income: rent

Question 10

labour

Answer 10

workers and their skills

factor income: wages

Question 11

enterprise

Answer 11

a project or undertaking, typically one that is difficult or requires effort.

• entrepreneur: the person that organises production and is willing to take risks
• factor income: profit

Question 12

capital

Answer 12

human-made aids to production

Question 13

renewable resources

Answer 13

replaced at a rate equal to or quicker than consumption

Question 14

non-renewable resources

Answer 14

cannot be replaced at a rate equal to its consumption

Question 15

primary sector + secondary + tertiary

Answer 15

extraction of natural resources

manufactoring and assembly

services

Question 16

short run

Answer 16

at least one FOP does not change

Question 17

long run

Answer 17

all FOPs can change

Question 18

very long run

Answer 18

change in technology

Question 19

free goods

Answer 19

A free good is a good with zero opportunity cost. This means it can be consumed in as much quantity as needed without reducing its availability to others

• Not scarce
• No opportunity cost
• No market price
• etc. air, sunlight

Question 20

economic goods

Answer 20

goods and services are produced which satisfy consumers needs and wants directly

• Scarce
• Opportunity cost
• Market price
• etc. food, clothing

Question 21

public goods

Answer 21

good or service that is provided without profit to all members of a society, either by government or a private individual or organisation

• Non-rivalry (non-diminishing) - consumption by one person does not reduce availability for others.
• Non-excludable - non-paying consumers cannot be prevented from consuming the product.
• Non-rejectable - everyone consumes, whether they want to or not.
• etc. street lighting, lighthouses, fireworks display, national defence.

Question 22

merit goods

Answer 22

• private good
• external benefits
• one that has positive side effects when consumed
• underproduced and under-consumed due to information failure (consumers are not fully aware of the effects).
• better for a person than the person that may consume the good realises
• etc. education, healthcare.
• Government intervention: subsidies, laws & regulations, provide information.

Question 23

demerit goods

Answer 23

• private good
• external costs
• one that has negative side effects when consumed
• habit-forming, relatively cheap and readily avaliable
• due to information failure (consumers are not fully aware of the effects).
• etc. alcohol, cigarettes.
• Government intervention: tax, laws & regulations, provide information.

Question 24

private goods

Answer 24

an item that yields positive benefits to people

• Rivalry (diminishing) - consumption by one person reduces availability for others.
• Excludable - can prevent people who have not paid from consuming the product.
• Rejectable - people do not have to consume if they don’t want to.
• etc. clothing, food

Question 25

public goods are provided by

Answer 25

the government due to the free-rider problem:

• Due to non-excludability, consumers have no incentive to pay.
• Private firms cannot charge a price and therefore can not make revenue or profit.
• Therefore, private sector will not provide the public good.

Question 26

quasi-public good

Answer 26

Semi-rivalry and semi-excludable.